The social and economic impact of private equity in China

Over the past decade, the venture capital and private equity (PE) industry in China has grown in stature and influence, serving as a driving force for economic growth, job creation, innovation and entrepreneurial success.

China now is one of the leading destinations for PE capital amid continued global economic turbulence, with more than US$16 billion invested in 2011, representing 0.2% of China’s GDP compared with 0.3% in Europe and 0.5% in the US.

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This survey, the first of its kind, analyses the social and economic impact of the PE industry throughout China. It was launched in 2009 by the Private Equity and Strategic M&A Working Group of the European Union Chamber of Commerce in China, in partnership with Bain & Company. Our goal is to quantify the social and economic value created by PE, using a rigorous methodology and objective fact-finding. We’ve analysed how PE continues to deliver economic growth for Chinese companies as well as contributes to a more innovative and green economy. The analysis also provides a balanced look at areas where PE’s impact has fallen short of expectations.

It’s gratifying to see that the 2009 study quickly became a point of reference for the industry. It was designed as a key information tool for all PE stakeholders: government officials, financial institutions, media, industry associations, scholars, and particularly entrepreneurs and management teams. The 2012 survey applies the same methodology, providing the consistency required to identify trends. But the scope is expanded to assess environmental performance as well as the growth of small and mid-sized enterprises (SMEs) in China.

The study also provides transparency for the general public. Transparency creates trust. It is our goal to strengthen the trust people have in PE by explaining how this important industry works and detailing its contributions to China and its people. We believe the PE industry will achieve increased sustainability by highlighting PE’s impact on major social indicators such as job creation, investments into R&D investments, “green economy” and China’s “Go West” policies. In addition, it assesses the impact on economic performance, including revenue and profitability growth, support to SME companies, and corporate governance improvement.

At a time when China is rebalancing its economic model, with the aim of achieving more inclusive and consumption-driven growth, this survey offers a unique social and economic perspective to an industry that is too often regarded as pure financial engineering. It applies rigorous data analysis to answer the question: What does private equity mean for China’s society as a whole?